Discovering worthy deals takes talent, knowledge, experience, and time…lots and lots of time.
Because of this, scores of investors are rather happy to buy a property “wholesale” from other investors.
Reflect on the following: investor A is a newer investor and has more time than money. Investor B is an more experienced investor and has more cash than time.
Investor A can devote his time constructing systems to find sellers, looking at houses, running comparables, and making offers – most of which will be turned down. The final result of all this legwork will be the sporadic good agreement.
Investor B is more interested in preserving his time for other pursuits since he already has a robust capital foundation and probably has grandchildren vying for attention. He’s still a buyer still, but he’s no longer interested in doing all the groundwork.
By working as one, investor A & B can essentially do extremely well.
For investor A, he’s now open to do as many deals as he can find, devoid of apprehension for running out of capital. Why? Because he’s going to take a small, earlier profit when he sells his deals to investor B.
Consider the fix-and-flip model that is executed by many. If investor A was to tie up all his cash and time in a single fix-and-flip, the risks are sizeable. His capital is in jeopardy and he’s not out searching for new deals. If the project goes south or doesn’t sell, investor A has essentially taken himself out of the game until the house sells.
Most flippers presume to make at least $30,000 per deal and anticipate that it’ll take 4-5 months per transaction.
Conversely, the wholesaler needs no principal and takes virtually no risk, other than his time. Instead of supervising a rehab, his duty is to constantly tie up houses and then flip those contracts to other investors that would like to do the rehab.
Taking the wholesale approach will enable the young investor to execute a deal a month with a wholesale charge of $5-10K per deal. Simple math will tell you that over the same 4-6 months, the profit potential is at least equal to the rehab-to-retail agreement; albeit with significantly less danger!
As you can observe, wholesaling can be a extremely good deal for the investor who has the time and the contacts to get it done. I ought to also point out that although I have inferred that wholesaling is for younger investors, the reality is that it can work awfully well for any investor prepared to devote the time to digging for deals.
So, the next time you control a house under contract that you are thinking of rehabbing-to-retail, perhaps you may want to deliberate wholesaling it for a good fee and at once setting out to find a new agreement.
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